Income Tax Ordinance (XXXI of 1979)---

----Ss. 19 & 63---Wealth Tax Act (XV of 1963), Preamble-- Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)---Income from house property, determination of-- Estimation of rental income was adopted on the basis of rent determined for wealth tax purpose---Validity---Adopting of rent for income tax purposes on the basis of rent determined for wealth tax assessment was illegal because for the purposes of wealth tax the value of the property was determined on the basis of reasonably expected rent even if the property had remained vacant throughout the year but in case of income tax where the property was let out the rent was to be taken on receipt basis---Property was actually let out---Assessing Officer was required to take into account the rent actually received by the complainant/assessee and in case he was of the opinion that the rent declared was not true he should have conducted an enquiry to find out the correct position---Assessing officer had not given any finding that the income declared was not true and correct and adopted the wrong basis for determination of rental income contrary to the provision of S.19 of the Income Tax Ordinance, 1979---Assessment order being without legal basis was arbitrary and contrary to law ---Maladministration having been established, Federal Tax Ombudsman recommended that Competent Authority to cancel the assessment order and fresh order be made after taking into account the facts and circumstances of the case and after affording the complainant/assessee a reasonable opportunity of being heard.

Nemo for the Complainant.

Safdar Iqbal, DCIT for Respondent.

FINDINGS/DECISION

Brief facts of the case are that the complainant derived income from house property. Return for the assessment year 1999-2000 was filed declaring an income of Rs.55,200. For non-compliance of notices under section 61, assessment was made ex parte by adopting the monthly rent from property at Rs.25,000 relying upon the wealth tax record. of the complainant where monthly rent for the assessment year 1996-97 was determined at Rs.20,000. The assessment order is contested to be illegal and without jurisdiction on the ground that the complainant was not afforded proper opportunity of hearing as no notice was properly served on him. It is further contended that income from house property was not adopted in accordance with the provisions of section 19 of the repealed Ordinance, 1979 and the estimation of rental income adopted on the basis of rent determined for wealth tax purposes was illegal It is prayed that ex parte order be declared illegal and void.

2. In reply the respondent has defended the ex parte assessment order to be valid as the complainant was afforded sufficient opportunity of hearing with proper service of notice under section 61 for more than once which were not complied with. As regards estimation of monthly rent at Rs.25,000 it was stated that the rent was adopted on the basis of rent determined for wealth tax purposes for the assessment year 1996-97 at Rs.20,000 and the normal annual increase taken at 25%. It was further stated that the complainant had himself filed his return in Circle-3 Sargodha and the issue of jurisdiction was never raised at any stage and therefore, the contention of the complainant that the assessment order was without jurisdiction was not correct.

3. No one attended on behalf of the complainant. An application for adjournment was received which is rejected being without valid reason and the complaint is taken up for decision on merit. The representative of the respondent attended. He was heard and relevant record was examined. The record showed that the complainant declared income from rent at Rs.55,200 which was assessed at Rs.240,000 by adopting the annual rent at Rs.300,000 on the basis of estimated rent of Rs.25,000 and after allowing repair charges at 1/5th of the total rent, the assessed income was arrived at. The contention of the complainant that adopting the rent at Rs.25,000 for income-tax purposes on the basis of rent determined for wealth tax assessment was illegal is valid because for the purposes of wealth tax the value of the property was determined on the basis of reasonably expected rent even if the property has remained vacant throughout the year but in case of income-tax where the property is let out the rent was to be taken on receipt basis. In the instant case the property was actually let out and the Assessing Officer was required to take into account the rent actually received by the complainant and in the case he was of the opinion that the rent declared was not true he should have conducted an enquiry to find out .the correct position. The Assessing Officer has not given any finding that the income declared was not true and correct and adopted the wrong basis for determination of rental income contrary to the provisions of section 19 of the repealed Ordinance, 1979. The assessment order being without legal basis is arbitrary and contrary to law. Maladministration is established.

4. In view of the foregoing, it is recommended that:---

(i)The Competent Authority to cancel the assessment order for the year 1999-2000 and fresh order be made after taking into account the facts and circumstances of the case and after affording the complainant a reasonable opportunity of being heard.

(ii)Compliance be reported within 30 days.

C.M.A./1055/FTOOrder accordingly.